GLOBAL MARKETS-ECB speculation drives down yields, weighs on euro

LONDON, Aug 27 (Reuters) - Euro zone government bond yields
plumbed record lows on Wednesday and the euro fell to its
weakest in a year against the dollar on expectations the
European Central Bank will act soon to counter low growth and
slowing inflation.

The prospect of further stimulus, through an asset-buying
programme known as quantitative easing, also buoyed stock
markets. European shares rose again, building on two days of
strong gains, and Wall Street was expected to open higher.

Fuelling the speculation of ECB easing, Italian Economy
Minister Pier Carlo Padoan said Italy must lower its growth
forecast for this year, and German consumer sentiment fell for
the first time since early last year.

"When the (euro zone's) largest economy is falling behind,
this is very much increasing the chances of the ECB heading for
further monetary measures, above all QE," said DZ Bank
strategist Daniel Lenz.

The yield on the benchmark German Bund fell
some 4 basis points to a record low of 0.909 percent. Bund
futures climbed to a record high of 151.32. Yields fell
across the euro zone, with records set in most higher-yielding
debt, including Italy and Spain's.

Euro zone inflation data due on Friday are likely to show a
new low for this cycle of just 0.3 percent and add to the sense
of urgency on policy.

ECB President Mario Draghi's call last week for more action
in both monetary and fiscal policy has markets betting further
steps may come as soon as the central bank's next policy
meeting, on Sept. 4.

German Finance Minister Wolfgang Schaeuble on Wednesday,
however, cooled some of the speculation, saying Draghi's
comments had been "over-interpreted".

The euro broke to an 11-month low of $1.3152 in Asian
trade on Wednesday before recovering some ground to $1.3180 in
European trade, up 0.1 percent on the day.

Some thought the euro had fallen too far.

"Our contention is that Draghi and the ECB are turning more
dovish, but nowhere near as dovish as the market has interpreted
it ... " said Adam Myers, head of foreign exchange strategy at
Credit Agricole in London. "And because of that ... today we
think the euro will bounce - it's gone too far."

The euro's earlier weakness helped lift the dollar index
to its highest in 13 months at 82.698 before it eased
back. The greenback was last at 103.93 yen, retreating from
Monday's seven-month peak at 104.49.

More liquidity in Europe would probably be good for emerging
markets, and MSCI's broadest index of Asia-Pacific shares
outside Japan gained 0.4 percent to its highest
since January 2008.

The pan-European FTSEurofirst 300 index inched up
0.1 percent, though Germany's DAX fell a similar
amount.

U.S. stocks, which rose on Tuesday with the S&P 500
closing above 2,000 points for the first time, were expected to
open flat to slightly higher. S&P 500 E-mini futures were
up less than 0.1 percent.

Markets also kept a wary eye on developments in Ukraine
after Russian President Vladimir Putin met his Ukrainian
counterpart Petro Poroshenko for one-on-one talks.

Poroshenko said a "roadmap" would be prepared to agree to a
ceasefire as soon as possible in east Ukraine. Putin emphasised
it was up to Kiev to work out conditions with pro-Russian
separatist rebels.

In commodities, gold rose above $1,285 an ounce as
the dollar index retreated.

Oil prices recovered some of their recent losses. Brent
crude rose 18 cents to $102.68 a barrel. U.S. crude
gained 25 cents to $94.11.
(Additional reporting by Nigel Stephenson, John Geddie and
Anuirban Nag in London and Wayne Cole in Sydney; Editing by
Larry King)